Where Small Biz Hiring, Lending Stands As Summer Ends

Summer is quickly closing out, and changing seasons can sometimes signal shifting cash flows for small businesses. The latest research from payroll firm ADP and small business lender Biz2Credit offers some idea of how small businesses stand as the autumn season rolls up.

What’s Up

First, the good news: Small business hiring edged up in August compared to July, researchers at ADP said in their report, released on Wednesday (Aug. 31). Analysis found 63,000 new jobs added by U.S. SMEs in the month, with an array of industries leading the way, including retail, health care and technology consulting.

Nearly 40 percent of these job additions came from the smallest companies in the SME segment, while about 60 percent were added by businesses with between 20 and 49 employees.

ADP also revised July’s total job addition figure from 179,000 to 194,000, according to the report.

“The American job machine continues to hum along,” Moody’s Analytics Chief Economist Mark Zandi said in a statement in response to ADP’s data.

Meanwhile, in the land of small business finance, Biz2Credit’s research, also published on Wednesday, found an increase in SME loan approval rates among institutional lenders, thanks to low default rates and high yields, as well as rising interest from overseas lenders looking to reach SME borrowers via these players.

“Rates are still historically low, and small businesses that are currently profitable are able to get loans for expansion and working capital,” Biz2Credit CEO Rohit Arora told reporters.

What’s Down

Now, for the bad news: Despite a slight uptick in job creation overall — especially among SMEs — the figures are still below monthly averages for August, ADP said. Researchers noted that the monthly average stands at 84,000 added jobs among small and medium-sized businesses in the first half of the year — far greater than the 63,000 jobs created last month.

And while some industries as boosting their employment levels, others are shrinking them. Manufacturers, for instance, cut 4,000 jobs, the data found.

Analysts at ADP said the numbers reflect a sentiment of caution among the nation’s small businesses as they wait for economic recovery to pick up pace. Survey responses pointed to small business owners holding off on investing in staff increases until after the presidential election, according to reports.

Small business lending isn’t doing too hot, either.

The latest monthly report from Biz2Credit concluded that both traditional banks and alternative lenders are decreasing their small business lending volumes, according to data from July.

At big banks, SME loan approval rates dropped one-fifth of a percent compared to the month prior, hitting 23.1 percent. Alternative lenders, meanwhile, yielded a 60 percent small business loan approval rate.

Biz2Credit’s Arora noted that the data signals a disappointing view of the national economy.

“The economy in the second quarter was a bit sluggish because of slower global growth; this impacts big banks more than other lenders,” Arora stated. “When there is turbulence in international markets, such as the angst over Britain’s leaving the EU, big banks tend to become more conservative in their lending.”

“Brexit had some impact, but not a major one, on small business finance,” the CEO continued.

As for alternative lenders’ declining loan approval rates, Arora concluded that small businesses continue to dismiss these platforms as an option.

“Alternative lenders have steadily lost favor among small business borrowers, in large part because their cost of capital is so high,” said the CEO. “Creditworthy borrowers can typically secure better interest rates and terms from other types of lenders. Alternative lenders still have some appeal for borrowers whose credit scores might be low.”

Overall, Arora said, the U.S. economy is stable. But while global economic uncertainty looms, as does the anxiety over the U.S. presidential election, SMEs in the country may not be looking for any major expansions and investments this fall.